RBI comes to Modi govt’s rescue, announces interim dividend of Rs 28,000 crore

The interim dividend, announced for the second successive year, will help the government meet its revised fiscal deficit target of 3.4 per cent for 2018-19.

RBI headquarters | Photo: Vivek Prakash | Bloomberg

New Delhi: The Reserve Bank of India (RBI) Monday announced an interim dividend of Rs 28,000 crore for the year ending March 2019, in a move that will provide a reprieve for the Modi government on the fiscal front.

This is the second consecutive fiscal in which the central bank has given an interim dividend to the government to help it meets its fiscal deficit projections.

The decision was taken at the meeting of the central board of directors of the RBI held in the national capital.

“Based on a limited audit review and after applying the extant economic capital framework, the Board decided to transfer an interim surplus of Rs 280 billion to the central government for the half-year ended December 31, 2018,” RBI said in a statement.

The payout comes at a time when the Modi government is struggling to meet its fiscal deficit numbers as revenue collections, especially the goods and services tax collections, have failed to keep pace with the budget targets.

At the same time, government expenditure is on the rise as the poll-bound Modi government has announced populist schemes like the income support scheme for farmers that will cost the exchequer Rs 75,000 crore in 2019-20 and Rs 20,000 crore in 2018-19.

In the union budget announced earlier this month, the government revised its fiscal deficit target for 2018-19 upwards to 3.4 per cent from 3.3 per cent budgeted earlier.

While RBI follows a financial year of July to June, the government follows a April-March fiscal. So far, the practice had been for the central bank to close its books in June and pay out the dividend in August.

However, RBI paid an interim dividend for the first time last year when it transferred Rs 10,000 crore on 27 March 2018.

Dividend for government

From the government finances perspective, the Centre had budgeted that it will get Rs 68,000 crore as surplus from RBI in 2018-19.

Of this, while Rs 40,000 crore was paid by RBI in August 2018, the government had factored in an interim dividend of Rs 28,000 crore from the central bank before the fiscal ending March 2019. The amount announced Monday was equivalent to the amount budgeted by the government.

The highest dividend payout received by the government from the central bank was in the fiscal 2015-16 — for RBI’s fiscal ending June 2015.

Under then governor Raghuram Rajan, RBI had paid a dividend of Rs 65,896 crore and this was followed by a dividend of Rs 65,876 crore in 2016-17.

Before Rajan’s tenure, the payouts from RBI averaged less than Rs 21,600 crore over a five-year period.

The Modi government has been pushing the central bank to part with more of its surplus arguing that the reserves held by the central bank were way more than what is maintained by central banks of other countries.

After failing to arrive at a consensus, the government and the RBI set up a committee under former RBI governor Bimal Jalan to determine the level of reserves that the RBI should hold.

The committee is expected to submit its report only in the next financial year.